Alfred Janiga v. Questar Capital Co

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-2982 & 09-3087
A LFRED JANIGA,
Plaintiff-Appellee,
v.
Q UESTAR C APITAL C ORPORATION, et al.,
Defendants-Appellants.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 09 C 2462—Milton I. Shadur, Judge.
A RGUED JANUARY 15, 2010—D ECIDED A UGUST 2, 2010
Before W OOD , E VANS, and SYKES, Circuit Judges.
W OOD , Circuit Judge. This case poses the question
whether the court or an arbitrator is responsible for
deciding whether a particular document that the parties
signed qualifies as a contract, and if so, whether that
contract includes an arbitration clause. Alfred Janiga is
a Polish immigrant who has lived and worked in Illinois
for more than 20 years; nevertheless, to this day (by his
account) he understands only limited English. Janiga’s
2 Nos. 09-2982 & 09-3087
brother, Weislaw Hessek, runs Hessek Financial Services,
LLC (“Hessek Financial”) and is a registered represen-
tative of Questar Capital Corporation (“Questar”), a
securities broker-dealer. Problems erupted after Hessek
arranged for his brother to invest with Questar. Janiga
signed one page of Questar’s New Account Form and
began depositing money into his new account. The Form
included an arbitration clause. One year after opening
the account, and unhappy with the returns on his invest-
ment, Janiga sued Hessek, Hessek Financial, and Questar.
Defendants (to whom we refer collectively as “Questar”
unless the context requires otherwise) asked the district
court to stay proceedings and order arbitration under
the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3, 4. The
district court decided that it could not order arbitration
immediately because it was not clear whether a contract
between Questar and Janiga even existed. It therefore
denied the motions without prejudice and told Questar
that it could renew its motion if and when the court
concluded that there was a contract. Construing this as
an order denying a motion to refer the case to arbitra-
tion, all three defendants filed this immediate appeal.
Id. § 16.
The Supreme Court has said that the responsibility to
determine the validity of the contract as a whole is as-
signed to the arbitrator, while specific challenges to an
arbitration clause normally remain with the court.
See Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2778
(2010) (agreements to arbitrate are on an equal footing
with other contracts and are subject to generally appli-
Nos. 09-2982 & 09-3087 3
cable contract defenses). But who decides whether a
contract exists at all? Janiga believes that this is an issue
for the district court. Questar takes the opposite posi-
tion and urges that the arbitrators have this responsi-
bility. The district court decided that it should address
the contract-formation question, but it refrained from
doing so on the ground that it lacked sufficient evidence
to reach a conclusion. We agree with the district court
that the existence of a contract is an issue that the courts
must decide prior to staying an action and ordering
arbitration, unless the parties have committed even that
gateway issue to the arbitrators. Id. at 2779-81. Unlike the
district court, however, we are satisfied that the record
contains enough evidence to resolve the question. That
evidence shows that the parties formed a contract and
that their agreement included an arbitration clause. We
therefore reverse the district court’s order and remand
with instructions to grant Questar’s motion to stay and
to order arbitration.
I
Janiga is the President and Secretary of Polkraft Builders
Corporation, an Illinois company that specializes in
residential and commercial remodeling. According to
Janiga, Hessek lobbied him for two years to invest with
Questar. After Janiga finally agreed to open an account
in March 2008, Hessek brought Janiga a “piece of paper”
and told him to sign it. The paper Hessek proffered
was page three of Questar’s New Account Form. Janiga
represents that Hessek never discussed “any terms of any
4 Nos. 09-2982 & 09-3087
agreement . . . including the meaning and existence of
arbitration as a dispute resolution” and, despite Janiga’s
explicit request, Hessek never provided copies of any
documents related to the account. Janiga speaks and
understands only limited English. According to Janiga,
all of his communications with Hessek were in Polish.
The New Account Form is actually just one in a series
of three connected documents; the other two forms are
the Client Agreement and the Sponsorship Program
Disclosure. All contract documents are written in Eng-
lish. Janiga admits that he saw and signed page three of the
New Account Form when Hessek gave it to him, but he
says that this is all that he saw. Page three, however, made
no secret of the fact that there was an arbitration clause in
the picture. Directly above Janiga’s signature, it proclaims:
“I/WE HAVE READ AND UNDERSTOOD THE
PRE-DISPUTE ARBITRATION AGREEMENT CON-
TAINED ON PAGE 4, PARAGRAPH 9 OF THE
CLIENT AGREEMENT AND HAVE RECEIVED A COPY
THEREOF.”
As that language indicates, the arbitration clause
appears in the separate Client Agreement, which follows
the page that Janiga signed. The clause states in part:
I (we) understand that my (our) account is subject
to the arbitration rules of the Financial Industry Reg-
ulatory Authority. Arbitration is used to resolve
a dispute between two parties. . . .
THIS AGREEMENT CONTAINS A PRE-DISPUTE
ARBITRATION CLAUSE. BY SIGNING AN ARBITRA-
Nos. 09-2982 & 09-3087 5
TION AGREEMENT, THE PARTIES AGREE AS
FOLLOWS:
(A) All parties to this agreement are giving up
the right to sue each other in court, including the
right to a trial by jury, except as provided by the
rules of the arbitration forum in which a claim is
filed.
(B) Arbitration awards are final and binding; a
party’s ability to have a court reverse or modify an
arbitration award is very limited.
....
I (we) agree that all controversies that may arise
between us concerning any order or transaction, or
the continuation, performance or breach of this or
any other agreement between us, where entered into
before, on, or after the date this account is opened,
shall be determined by arbitration before a panel of
independent arbitrators set up pursuant to the rules
of the Financial Industry Regulatory Authority, or,
where applicable, a court of competent jurisdiction.
The Client Agreement specifies that New York law
governs the agreement and its enforcement, but the
arbitration clause found within the Client Agreement
provides that the FAA and Minnesota law govern the
arbitration agreement.
Once Janiga opened his account, Questar started to
send monthly statements. For a time, Janiga did not
register any complaints. Three months after signing the
agreement, Janiga invested an additional $180,000 in
his account. A year into the relationship, however, Janiga
6 Nos. 09-2982 & 09-3087
filed a complaint against Hessek, Hessek Financial, and
Questar in the United States District Court for the North-
ern District of Illinois. Janiga’s complaint asserted six
theories of recovery against the defendants: (1) violation
of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5; (2) negligence; (3) breach of fiduciary
duty; (4) fraud; (5) excessive trading and churning of an
investment account; and (6) violation of the Illinois
Fraud and Deceptive Business Practices Act.
On May 20, 2009, Questar filed a motion to dismiss, or
in the alternative, to stay proceedings and order arbitra-
tion. On June 10, 2009, Hessek and Hessek Financial
filed a separate motion asking the court to order arbitra-
tion. Janiga conceded that he “agreed to invest” with the
defendants, but he offered a number of reasons why
the district court should deny those motions and disre-
gard the arbitration clause. To resolve these issues, the
district court held three status conferences over two
months. The first two of these addressed various
issues related to contract enforcement, such as Illinois
consumer protection law and Hessek’s purported
fiduciary duty. At the third and final status conference,
on July 10, 2009, the district court focused on the
“meeting of the minds,” in light of Janiga’s limited under-
standing of English and his assertion that he had never
seen more than one page of the contract. The district
court concluded that it would not stay proceedings and
order arbitration unless and until the defendants estab-
lished that a contract was formed. The district court
judge orally explained his decision as follows:
Nos. 09-2982 & 09-3087 7
[T]he step that has to come first is to determine
whether there was an Agreement. And accordingly
I am at this point denying the motion to stay and to
compel arbitration . . . without prejudice for the possi-
ble renewal if it’s determined on an appropriate
record that there is indeed an Agreement to arbitrate
at all. . . . It seems to me that what [] you ought to
be thinking about is how to pose the issue in a way
that the Court can address it, whether through
hearing, I would expect, or some appropriate way.
The district court entered an order denying the motions
without prejudice on July 10, 2009.
Questar filed a timely notice of appeal on August 7, 2009,
F ED. R. A PP. P. 4(a)(1)(A), and Hessek filed a separate
notice of appeal on August 20, 2009, F ED. R. A PP. P. 4(a)(3).
Questar’s notice of appeal was docketed as No. 09-2982;
Hessek’s appeal was docketed as No. 09-3087. We con-
solidated the appeals for our review.
II
Before turning to those questions, however, we must
explain why our appellate jurisdiction is secure. While
ordinarily the courts of appeals have jurisdiction only
over final decisions, 28 U.S.C. § 1291, the FAA estab-
lishes appellate jurisdiction over certain interlocutory
appeals. See Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896,
1900 (2009). It provides that an interlocutory appeal may
be taken from a district court order “refusing a stay of any
action . . . under this title” or “denying a petition . . . to
8 Nos. 09-2982 & 09-3087
order arbitration to proceed.” 9 U.S.C. § 16(a)(1)(A), (B).
We have held that this rule applies even if the district
court expressly intended to revisit the issue after addi-
tional fact-finding. See, e.g., Boomer v. AT&T Corp., 309
F.3d 404, 412-13 (7th Cir. 2002); Koveleskie v. SBC Capital
Mkts., Inc., 167 F.3d 361, 363 (7th Cir. 1999).
That said, we have also recognized that some house-
keeping orders that give rise to a “delay incident to an
orderly process” are not immediately appealable. Cont’l
Cas. Co. v. Staffing Concepts, Inc., 538 F.3d 577 (7th Cir.
2008) (quoting Middleby Corp. v. Hussman Corp., 962 F.2d
614, 616 (7th Cir. 1992)). In Continental Casualty, the
district court struck without prejudice the defendants’
motion to dismiss or stay the action pending arbitration,
in order to give the court an opportunity to address
pending motions related to personal jurisdiction and
venue. 538 F.3d at 579-80. This rule recognizes that
district courts must be given the discretion to manage
their cases; routine orders that incidentally delay a deci-
sion on a motion to order arbitration fall outside the
scope of § 16.
This case involves more than an action designed to
permit an orderly process. The district court denied de-
fendants’ motions to stay because it believed that the
defendants had not established that a contract existed.
This is the type of decision that we may review immedi-
ately. We do so now, and decide that the district
court erred in denying Questar’s motion, and that it
should take another look at Hessek and Hessek Finan-
cial’s motion.
Nos. 09-2982 & 09-3087 9
III
We begin our analysis with the FAA. 9 U.S.C. §§ 1-16.
The FAA provides that a written arbitration agreement
in certain contracts “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” Id. § 2.
Although it is often said that there is a federal policy
in favor of arbitration, federal law places arbitration
clauses on equal footing with other contracts, not above
them. See Rent-A-Center, supra, at 2776; Gotham Holdings,
LP v. Health Grades, Inc., 580 F.3d 664, 666 (7th Cir. 2009)
(quoting Volt Information Sciences, Inc. v. Board of Trustees of
Stanford University, 489 U.S. 468, 476 (1989)). Any “prefer-
ence” for arbitration is reserved for the interpretation of
the scope of a valid arbitration clause, see, e.g., AT&T
Techs., Inc. v. Communications Workers of Am., 475 U.S. 643,
649-50 (1986), which is not at issue here. The parties do not
dispute that the scope of the arbitration clause is broad
enough to encompass the issues raised in the complaint.
As we have already noted, all three defendants filed
motions under sections 3 and 4 of the FAA. Section 3
allows a party to an action in federal court to request a
stay of that action pending arbitration if a valid arbitra-
tion clause exists, and section 4 allows a party to file
a motion to order that arbitration. 9 U.S.C. §§ 3, 4. The
district court denied these motions without prejudice
pending a determination that a contract existed.
The first aspect of the district court’s ruling that Questar
challenges is the conclusion that it was the court’s job
to decide whether a contract exists. The division of labor
10 Nos. 09-2982 & 09-3087
between courts and arbitrators is a perennial question
in cases involving arbitration clauses. In Prima Paint Corp.
v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967),
the Supreme Court announced that, when faced with
motions to stay suits or order arbitration, courts should
evaluate only the validity of the arbitration agreement;
challenges to the validity of the entire contract—e.g., fraud
in the inducement—should be left to the arbitrator.
See James v. McDonald’s Corp., 417 F.3d 672, 680 (7th Cir.
2005) (describing the Prima Paint rule). In Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the Court
reviewed a decision of the Supreme Court of Florida
that refused to enforce an arbitration clause in a con-
tract that was challenged as unlawful under state law.
Applying Prima Paint and Southland Corp. v. Keating,
465 U.S. 1 (1984), the Court “conclude[d] that because
respondents challenge the Agreement, but not specif-
ically its arbitration provisions, those provisions are
enforceable apart from the remainder of the contract.
The challenge should therefore be considered by an
arbitrator, not a court.” 546 U.S. at 446. In short, “a chal-
lenge to the validity of the contract as a whole, and not
specifically to the arbitration clause, must go to the arbi-
trator.” Id. at 449.
Buckeye thus reaffirmed the validity of Prima Paint in
allocating the responsibility for two types of challenges:
challenges to the validity of the arbitration agreement
and challenges to the contract as a whole. In a footnote,
however, the Court in Buckeye acknowledged the possi-
bility of a third type of challenge, which is exactly the
issue that is before us now:
Nos. 09-2982 & 09-3087 11
The issue of the contract’s validity is different from
the issue whether any agreement between the
alleged obligor and obligee was ever concluded. Our
opinion today addresses only the former, and
does not speak to the issue decided in the cases cited
by respondents (and by the Florida Supreme Court),
which hold that it is for courts to decide whether the
alleged obligor ever signed the contract, whether
the signor lacked authority to commit the alleged
principal, and whether the signor lacked the mental
capacity to assent.
Id. at 444 n.1 (internal citations omitted). See Rent-A-
Center, supra, at 2778, n.2 (“The issue of the agreement’s
‘validity’ is different from the issue whether any agree-
ment between the parties ‘was ever concluded,’ and,
as in [Buckeye], we address only the former.”). As we
understand these footnotes, the Court was reserving
for another day the question who is responsible for de-
ciding whether the parties formed a contract at all.
In Granite Rock Co. v. International Brotherhood of
Teamsters, 130 S. Ct. 2847 (2010), the Court eliminated
all doubt about the answer to that question, when it
said “[i]t is similarly well settled that where the dis-
pute at issue concerns contract formation, the dispute is
generally for courts to decide.” Id. at 2855-56. In so doing,
it endorsed the position that this court had taken before
Buckeye. See, e.g., Deputy v. Lehman Bros., Inc., 345 F.3d 494
(7th Cir. 2003) (remanding a case to the district court
to assess whether there was a meeting of the minds in
light of a motion to compel arbitration); Sphere Drake Ins.
12 Nos. 09-2982 & 09-3087
Ltd. v. All Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001)
(holding that “as arbitration depends on a valid contract
an argument that the contract does not exist can’t
logically be resolved by the arbitrators”); Gibson v. Neigh-
borhood Health Clinics, 121 F.3d 1126 (7th Cir. 1997) (ad-
dressing the argument that a promise lacked considera-
tion as a judicially-determined issue). This rule follows
logically from the Court’s consistent emphasis on the
fact that arbitration is a matter of contract. See, e.g., Rent-A-
Center, supra, at 2776.
On this point, therefore, the district court was correct—
the court must decide whether a contract exists before
it decides whether to stay an action and order arbitra-
tion. The only place where we part company with its
conclusion is its belief that it was not able to resolve
this threshold question. Since Janiga does not challenge
the validity of the arbitration clause itself, the district
court should have constrained its review to the narrow
question whether a contract existed between the parties.
In our view, the record contains enough information to
permit a decision on the existence of a contract. As our
review is de novo, we can resolve that issue ourselves.
See Newkirk v. Vill. of Steger, 536 F.3d 771, 774 (7th Cir.
2008) (reviewing the formation of a contract de novo).
What concerned the district court was whether Janiga
appreciated the nature of the agreement that he had
signed, or, as the court put it, whether there was a
meeting of the minds. Janiga follows the same path in
the arguments he made both in the district court and
now on appeal. These arguments, if accepted, might lead
Nos. 09-2982 & 09-3087 13
to the conclusion that the contract is not enforceable.
For example, Janiga argues that he did not get a copy of
the contract, he never read it, he could not read it if he
tried, and he did not know what he agreed to do. He
also argues that Hessek’s fiduciary duty, Illinois con-
sumer protection law, and procedural unconscionability
invalidate the contract. But none of these arguments
refutes the basic point that Janiga signed an agreement
with Questar (using the services of Hessek) and that
the parties performed under that agreement for a year
or so. We are left only with the question whether that
contract is enforceable, and that is the kind of issue that
Prima Paint, Buckeye, and Rent-A-Center put squarely in
the arbitrator’s box.
Looking more formally at the question whether a con-
tract exists between Janiga and Questar, we recognize
first that contract formation is governed by state law.
See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
944 (1995). There is some question here about which
state’s law applies: the contract was signed in Illinois;
it provides that its enforcement shall be governed by the
laws of New York; and it separately provides that the
arbitration agreement is subject to Minnesota law. We
need not dwell on that problem, however, because we
see no difference among the laws of those three states
that would be dispositive. The goal in all three states is
to give effect to the intent of the parties as demonstrated
through objective conduct. Carey v. Richards Bldg. Supply
Co., 856 N.E.2d 24, 27 (Ill. 2006); Flores v. Lower E. Side
Serv. Ctr., 828 N.E.2d 593, 597 (N.Y. 2005); Hickman v.
SAFECO Ins. Co. of Am., 695 N.W.2d 365, 370 n.7 (Minn.
14 Nos. 09-2982 & 09-3087
2005). If the terms of the contract are unambiguous,
the court must enforce the contract as written. Lewitton v.
ITA Software, Inc., 585 F.3d 377, 380 (7th Cir. 2009) (ap-
plying Illinois law); Graev v. Graev, 898 N.E.2d 909, 918
(N.Y. 2008); Metro. Airports Comm’n v. Noble, 763
N.W.2d 639, 645 (Minn. 2009).
The problem for Janiga is that he signed a contract, and
that the paper he signed refers to arbitration. Janiga’s
signature—which he admits was given voluntarily—
objectively demonstrated his assent to the contract.
Indeed, Janiga admits that he agreed to open a brokerage
account. All that is left for us is to determine whether
the contract he signed included an arbitration clause. It
does. Even if we limit our review to the one page
that Janiga signed, it is impossible to avoid the conclu-
sion that he agreed to arbitration. As we noted at the
outset of this opinion, directly above his signature is the
following statement, in all capital letters: “I/WE HAVE
READ AND UNDERSTOOD THE PRE-DISPUTE ARBI-
TRATION AGREEMENT CONTAINED ON PAGE 4,
PARAGRAPH 9 OF THE CLIENT AGREEMENT AND
HAVE RECEIVED A COPY THEREOF.” This clause is
unambiguous; Janiga acknowledged by his signature
that he read, understood, and received a copy of the
arbitration agreement, and this clause (distinct from the
arbitration clause itself) says that disputes would be
subject to arbitration. Questar also offers various pieces
of objective evidence that support its claim that a
contract exists, including Janiga’s two deposits and his
admission that he agreed to invest. Again, Janiga’s various
complaints about enforceability are not at issue here;
Nos. 09-2982 & 09-3087 15
the only issue for the court is whether a contract was
formed. It was.
Janiga finally argues that the Seventh Amendment bars
arbitration. But that argument proves much too much;
parties are entitled to opt in a contract for an alterna-
tive method of dispute resolution that involves neither
courts nor juries. That is implicit in any arbitration agree-
ment. Here there is more: the plain language of the
contract includes an express waiver of the right to a jury
trial, and we uphold such waivers even in form con-
tracts. See, e.g., Sherwood v. Marquette Transp. Co., 587 F.3d
841, 842 (7th Cir. 2009). The district court therefore
should order arbitration between Janiga and Questar.
We cannot be as confident at this point that the arbi-
tration agreement between Janiga and Questar also
sweeps in Hessek and Hessek Financial. The latter two
defendants have asked us to hold that the arbitration
clause benefits and binds them to the same extent as
Questar. Hessek’s primary argument is that he and his
company are agents of Questar. Certainly an agent may
bind a principal to an arbitration agreement, see Zurich
Am. Ins. Co. v. Watts Indus., 417 F.3d 682, 687 (7th Cir.
2005), so there is no dispute that Questar is a party to the
contract even though it was acting through Hessek.
Hessek’s appeal asks whether agents can receive the
benefit of an arbitration agreement between their
principal and a third party. We have answered that
question in the affirmative for employees acting within
the scope of their agency, Dunmire v. Schneider, 481 F.3d
465, 467 (7th Cir. 2007), and there does not seem to be
16 Nos. 09-2982 & 09-3087
any reason to change the rule for non-employee agents.
The remaining questions, therefore, are whether Hessek
and Hessek Financial were agents of Questar, and whether
the claims asserted here are within the scope of their
agency. This is an issue about the arbitrability of certain
claims, and so it should be decided by the court. But
since the district court has not had the opportunity to
pass on these issues in the first instance, we remand
this much of the case to the district court so that it can
make the findings necessary to decide whether these
contract terms apply to Hessek and Hessek Financial
based on agency principles or otherwise.
Our decision in this appeal should not be read to pass
any judgment on Janiga’s arguments regarding the
enforceability of the contract. Prima Paint and Buckeye
do not banish these arguments; they simply assign the
responsibility for evaluating them to an arbitrator.
For these reasons, we R EVERSE the decision of the
district court to deny Questar’s motion and R EMAND for
further proceedings consistent with this opinion.
8-2-10